U.S. cuts pay at bailed out firms, BofA hits back

By Karey Wutkowski and David Lawder

WASHINGTON (Reuters) - The U.S. pay czar on Thursday slashed compensation for top earners at seven bailed-out companies for the final two months of the year, and was immediately slammed by the country's largest bank which claimed the cuts could send talent fleeing.

Many of the firms, which have together received more than $300 billion in taxpayer aid, issued conciliatory statements, but Bank of America said the ruling would put it at a disadvantage in competing with companies not under the pay czar's thumb.

"People want to work here, but they want to be paid fairly," said BofA spokesman Scott Silvestri.

Pay czar Kenneth Feinberg said competitive concerns and public outrage both played a role in how he reworked pay contracts for the 25 highest-paid employees at the five financial firms and two automakers who are the biggest recipients of government aid.

He said their cash compensation rates for the remainder of 2009 would drop 90 percent compared to 2008. Their overall compensation rates for those two months would on average be cut in half.

But he added he will not claw back payments already made. "I'm not going to go back and ask everybody to repay what they've already earned," Feinberg said.

The companies affected are American International Group Inc, Bank of America Corp, Citigroup Inc, General Motors Co, Chrysler, GMAC and Chrysler Financial.

U.S. officials have said Wall Street pay practices must be reformed to rein the excessive risk-taking that fueled the crisis that pushed the financial system to the brink of collapse last year.

Huge pay packages for banks and other financial firms have ignited public anger at a time the U.S. unemployment rate is at a 26-year high and seen climbing.

President Barack Obama said Feinberg's actions would help curb risk-taking, while still allowing the firms to prosper.

"We don't disparage wealth, we don't begrudge anybody for doing well, we believe in success," Obama said. "But it does offend our values when executives of big financial firms -- firms that are struggling -- pay themselves huge bonuses even as they continue to rely on taxpayer assistance to stay afloat."

Feinberg hinted the bailed-out firms did not seem to get the message adding that without exception, all of the pay plans that they submitted were inconsistent with the public interest.

"Some of the negotiations were very intense," he said.

His rulings cut salaries across the board and shifted much of the base salary to stock that can only be sold in one-third installments, beginning in two years. Bonuses can also only be paid in long-term restricted stock and are contingent upon performance and repayments of bailout funds.

BANKERS' PAY DRAWS PUBLIC IRE